Flood Insurance Fight Goes to Senate Panel

A federal flood agency official said Wednesday that it will take up to two years for a study on affordability issues related to the National Flood Insurance Program to be completed.

Craig Fugate, NFIP administrator for the Federal Emergency Management Agency, made that comment in response to the request from critics of the rate increases now being implemented for the NFIP that the hikes be delayed until the study is completed.

Currently, bills for the rate hikes, mandated by the Biggert-Waters Act of 2012, will start going out Oct. 1.

But, Fugate said, “The (National Academy of Sciences) estimates that it will likely take at least two years to complete the study due to the need to obtain data on policy-holders and their incomes.”

Fugate made his comments at a hearing convened by the Economic Policy Subcommittee of the Senate Banking Committee. The meeting was chaired by Sen. Jeff Merkley (D-Ore.)

The hearing was tense as both supporters and opponents of the rate increases voiced their views.

State insurance regulators, members of Congress and citizens from Texas and other states along the Gulf Coast, joined by officials and NFIP customers from Florida to Vermont, are voicing deep concern about the affordability issue. They fear rate increases of up to 3,000% as mandated by the law will force people to give up their homes.

However, Alicia Puente Cackley, director of Financial Markets and Community Investment for the Government Accountability Office, said the GAO’s study of the issue found limited problems.

Cackley testified that, in a study of remaining subsidies, the GAO estimated that with the changes in the rates mandated by Biggert-Waters, approximately 438,000 policies no longer are eligible for subsidies, including about 345,000 policies for second homes, about 87,000 business policies, and about 9,000 policies for single-family properties that had severe-repetitive losses.

Cackley said that subsidies on most of the approximately 715,000 remaining subsidized policies are expected to be eliminated over time as properties are sold or coverage lapses, as are previous exemptions from rate increases after flood zone map revisions.

Fugate’s testimony was consistent with that of Cackley. He said approximately 20% of policyholders, representing approximately 1.1 million of the 5.6 million NFIP policies, now pay subsidized rates.

He added that as FEMA implements the changes stipulated in the new law, these policyholders will eventually pay rates that reflect actual risk to their properties.

“The remaining 80% of policyholders will not see increases as a result of this change, although it is possible that their rates will increase if, in the future, new maps reveal higher risk under the phase-out of grandfathered rates required by the legislation,” Fugate testified at Wednesday’s session.

Fugate said that, as mandated by Biggert-Waters, FEMA is charged with completing a study with the National Academy of Sciences to explore ways to encourage/maintain participation in the NFIP, methods to educate consumers about the NFIP and flood risk, and methods for establishing an affordability framework for the NFIP, including implications of affordability programs for the NFIP and the federal budget.

The hearing was demanded by Louisiana’s two senators, Democrat. Mary Landrieu and Republican David Vitter. They say the rate hikes will have a severe impact on those who live in coastal areas of their state, and ask that the rate increases be delayed until affordability studies are completed and the accuracy of maps being used to set new rates is ascertained.

But supporters of the law asked the senators attending the meeting to hang tight. In a statement submitted at the hearing, Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, said that in those cases where assistance is truly needed, NAMIC supports providing assistance – on a means-tested basis – for those property owners who truly cannot afford the new rates.

“It is important, however, that any assistance to low-income homeowners should be fully transparent and not hidden as suppressed premiums that leave the homeowner blind to the actual risk they face from flood and the NFIP underfunded,” Grande said.

Steve Ellis, vice president of Taxpayers for Common Sense, added that “it is important to recognize that policyholders are not being denied the ability to purchase flood insurance.”

He said Biggert-Waters “simply eliminates the subsidized rates.”

“In reality, the biggest shift will be that second homes and businesses that used to claim 38% of the subsidized policies will now represent only 1.5% of the total,” Ellis said.